In our most recent series written by Jamie Cornehlsen, Denver CFA and founder of Capstone, FLOW examines how we seek out investments and make selections based on current market trends and future forecasts. Part seven of our series unveils the significance of obtaining a sustainable cash flow in high-yield stocks.
It has been one month since I opened my FLOW account; investing $150,000 in high yielding stocks.
When I selected my 20 investments, I did not choose based on how each had performed in the previous month or year. The investment value was presented in each company’s ability to produce cash flow.
I had to remind myself that this was the goal after the value of the portfolio declined to $140,137 within the first week; a cool $10,000 loss, or about 7% in five days of trading.
But this investment was developed to increase cash flow through acquiring businesses that could produce. Rather than focus on price, the value of the underlying business is what we will instead choose to concentrate on.
Besides the downturn in the account, we also received our first dividend check. With the TD Ameritrade account I created, I requested that dividends be paid out each month. On February 2, $432.67 was deposited into my savings account. This represents an annual return of 3%. I expected this percent to increase once our investments reached the ex-dividend date, which is the date stock must be owned by in order to have a right to the dividend.
After a full month of investing, I predicted the annualized yield to reach 11%.
Sustaining a Steady Cash Flow
Fortunately, the portfolio is beginning to produce satisfactory results. By the end of January, the account value had reached $157,489. Although I expect the principal value to fluctuate, the cash flow should preserve the investment.
Here’s my FLOW investment summary:
- 20 investment positions
- 10 investment categories
- Categories: convertible/preferred, covered calls, emerging markets, foreign governments, go anywhere (manager discretion), high-yield (junk bonds), REIT, mortgage debt, infrastructure, individual stocks (of the stock category, there are 6 individual stocks)
Since the last time of purchase made in the end of January, we have seen a spike in prices. Consequently, conditions for investing are not as favorable. However, for a cash flow yield, there are still opportunities with these 20 investments.
So, where does this leave us? In a slightly less favorable place, but a place that is still providing consistent cash flows.
The next step is to begin the weeding process. This is probably the most important practice of all, as it is where we evaluate the holdings to see if they are continuing to provide a consistent cash flow. If an investment shows a declining ability to produce a flow, we will then sell and replace with investments that we feel can generate the desired results.
In summary, I’m planning to keep my account open for the long haul, and expect to continue reaping the gains of the cash flow while I ride out the volatility of the stock market. I will be reporting back with updates as changes are made to the portfolio.
Past performance is not indicative of future results. This article is intended for informational purposes only and is not intended as investment advice. Individual investor experiences and results will vary.